USA equity markets spike, as the ISM manufacturing index reveals sharpest growth in thirteen years, euro falls due to Catalonia violence

Oct 3 • Morning Roll Call • 1857 Views • Comments Off on USA equity markets spike, as the ISM manufacturing index reveals sharpest growth in thirteen years, euro falls due to Catalonia violence

Sudden, outlier political events can often immediately effect the value of both our FX markets and the value of equity markets. The value of the euro fell during Monday’s trading sessions, as a consequence of the authorities clashing on Sunday with Catalonians in Spain, who wanted to hold a referendum vote, to ascertain if the area’s inhabitants would choose secession from the central Madrid government. The government sent in the army and armed police/riot squads, in an attempt to prevent the vote taking place. The referendum result was 90% in favour of secession, what validity this has is subject to debate, what is known is that circa 900 people were injured in the protests, harmed by the police force and riot squads the government instructed. The Spanish stock market (the IBEX) sold off heavily, closing down 1.21%, whilst other European markets closed up, despite Eurozone unemployment rising to 9.1% in August, from 9% in July. The euro was impacted by the Spanish event, selling off sharply versus the U.S. dollar.

USA equity markets rallied on Monday, despite the tragic news breaking early morning European time, regarding the carnage in Las Vegas, where over 58 people died and over 500 were injured, as a gunman opened fire on an open air concert. The stock of arms manufacturers rose by 5% due to fears that USA lawmakers will eventually limit the sales of certain weapons. Reports suggested that arms sales throughout the country were also brisk during the day. Ironically the ISM reading for manufacturing in the USA came in at a very healthy 60.8 for September, ahead of the forecast of 58.1, the largest growth in a month witnessed in over thirteen years. Several other ISM readings came in ahead of forecasts, in particular new orders came in at 64.6 for September, ahead of the 60.3 registered in August.

The UK’s governing party The Conservatives, are currently holding their annual conference in Manchester, as to whether or not this caused the UK’s main equity indices to rally is debatable, what is for sure is that a poor Markit manufacturing PMI for the U.K. caused the pound to slump versus its peers. The poor reading of 55.9 for September was taken as an indication that the classic, orthodox, economic theory; that a weak pound stimulates manufacturing and exports, appears to be debunked, as the UK’s manufacturers are currently holding back on equipment investment, due to the increased cost of imports and overall Brexit insecurity.

U.S.Dollar

The dollar index rose by circa 0.4% on Monday, to reach its highest level since July. EUR/USD fell to approx. 1.1734, falling through S2, and down circa 0.6% on the day. GBP/USD fell by circa 1% on the day, crashing through S3, its sharpest fall in over three weeks. USD/JPY rose by approx. 0.3% on the day, resting on R1, after breaching R2 earlier in the trading day and breaking back up through the critical psyche handle of 113, to then retrace back to 112.71. USD/CHF pushed up through R2 to end the day up circa 0.6%, at 0.9747. Having fallen earlier during the day versus the U.S. dollar, both Australasian dollars recovered ground to end the day close to flat, each currency pair down circa 0.1%, resting under the daily pivot points.

Euro

The Catalonia violence spooked euro investors as the notion of secession in a Eurozone member country, rattled confidence in the single currency bloc. EUR/GBP was the only significant pair to make gains, due to pound weakness, as opposed to euro strength, ending the day up circa 0.3%, breaching R1, at 0.8336. EUR/JPY fell by circa 0.6% to S2, at 132.65. Having fallen through S2 in the morning European session, to a low of 1.1389, EUR/CHF then clawed back its losses, to end the day at 1.1429.

Sterling

The pound sold off versus several of its peers, weak figures for manufacturing, according to the Markit PMI and the overhang of the UK’s latest quarterly GDP reading missing the forecast when published last week, has caused investor doubts that the UK’s economy is strong enough to maintain the base rate rises the BoE governor Mark Carney suggested were imminent. GBP/AUD fell by circa 1% through S3, GPB/JPY fell through S2, to end the day at circa 149.65. Similar to other main peers, sterling did recover losses versus the Swiss franc, late in the session; GBP/CHF ending the day at 1.2927, just below S1, having breached S3 and a low of 1.2847 early afternoon.

MAJOR EQUITY INDICES AND COMMODITIES SNAPSHOT

• DJIA closed up 0.69%.
• SPX closed up 0.39%.
• FTSE 100 closed up 0.90%.
• DAX closed up 0.58%.
• CAC closed up 0.39%.
• Gold was down on the day circa 0.4% @ $1270 per ounce.
• WTI oil was down on the day circa 2% @ $50.22 per ounce.

KEY ECONOMIC CALENDAR EVENTS FOR OCTOBER 3rd

• Currency impacted GBP. Markit/CIPS UK Construction PMI (SEP).

• Currency impacted GBP. Record of the Financial Policy Committee’s September meeting.

• Currency impacted AUD. AiG Performance of Service Index (SEP).

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